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Q&A
Nick Goodway, City Correspondent19 Sep 2008
What is short-selling?
It is when investors bet on particular share prices falling rather than rising. This can be done in various ways including borrowing shares from large institutions to sell and buy back when they are cheaper as well as spread bets and options.
What has been banned?
Increasing existing short positions or creating new short positions in banks and insurance companies.
When did it come into force?
Midnight last night. It is planned to last until 16 January.
Which companies' shares are included?
The Financial Services Authority named 29 companies including all the main high street banks and large insurance companies.
Why is the FSA doing this?
Regulators around the world believe that short-sellers have deliberately targeted companies like HBOS and Lehman Brothers and forced them into rescue takeovers or even into bankruptcy. It says this has "given rise to disorderly markets".
How will it work?
Anyone with a short position in any of the 29companies which is equivalent to 0.25% or more of the shares will have to make it public through a notice to the Stock Exchange.
Does that apply to existing positions?
Yes. Investors, hedge funds and fund managers have until 3.30pm on Tuesday to reveal their short positions. Many will close those positions now rather than be exposed publicly.
Then what happens?
It becomes illegal to increase an existing short position or create a new one.
What sanctions can the FSA take?
It can fine or censure anyone, from individuals to whole firms.
Who loses?
Mainly hedge funds who regularly use short positions as an investment strategy. For example, if they want to bet that Tesco is doing better than Sainsbury's, they buy shares in Tesco (known as going long) at the same time taking a short position in Sainsbury's.
Is anyone excluded from the new rules?
The market-making arms of the big investment banks, who are constantly taking long and short positions.
